The market for commercial mortgage-backed securities (CMBS) will begin to recover when issuers and bond buyers agree on pricing, probably late this year or early in 2009, observers say. Once that begins to happen, however, a potential flood of pent-up trading could plunge the market back into price volatility and value losses.
The worry that CMBS investors will unload large volumes of bonds and affect pricing is one of the forces stalling the CMBS market today, according to real estate attorney Doug Buck, a partner at Foley & Lardner LLP in Madison, Wis. “A lot of people are holding these CMBS issues in their portfolios right now and the fear is that these would be dumped onto the market and the pricing would come way down,” Buck explains. “There's a huge quantity of these things that are on people's books, and they're not really trading at the moment.”
Investors are certainly shying away from CMBS so far this year. Through the first week of May, United States' CMBS volume in 2008 amounted to a mere $10.8 billion compared with the $78.5 billion in bonds that sold during the first four months of 2007, according to industry newsletter Commercial Mortgage Alert.
Meanwhile, Financial Week reports on construction financing drying up.